DAILY FX OUTLOOK FX Themes/Strategy/Trading Ideas Thursday, October 12, 217 The USD shaded lower (1y UST yield softened slightly) after the FOMC minutes continued to show many members of the FOMC still doubting the transitory nature of soft inflation while a few members were in favor of deferring further rate hikes pending the data a flow.. Meanwhile, dovish comments from the Fed s Evans (voter, waiting for stronger wage growth) were somewhat balanced out by somewhat hawkish comments from the Fed s Williams (non-voter; stating that the economy has exceeded full employment). Evidently, Fed chair Yellen put on a brave front at and post-fomc despite the actual proceedings during the September FOMC. As such, the broad dollar may face a near term uphill battle if it is to rely on Fed-hike expectations at this juncture. As noted yesterday, the greenback may be further impinged if aggregate rate differentials with respect to the US continue to move in favor of the majors instead. Given this slightly heightened skepticism, the US September PPI tonight (and the September CPI on Fri) may garner slightly more market attention. On other fronts, central bank speak from several fronts may potentially sway global price action today. To this end, look to potential for further guidance from the Fed s Powell and the Fed s Brainard at 143 GMT. With Powell s name now being bandied about as a favored candidate (as opposed to Warsh) as the next Fed-chair, expect closer scrutiny on any potential rhetoric from him. Elsewhere, ECB heavyweights are also on tap today, with Draghi (143 GMT), Praet (143 GMT), Coeure (23 GMT), Lautenschlaeger (21 GMT). The BOE s Haldane (1945 GMT) and the Bank of Canada s Wilkins (1915 GMT) are also scheduled. Asian FX Treasury Research & Strategy Emmanuel Ng +65 653 473 ngcyemmanuel@ocbc.com Global EM equities continued to chalk up further gains on Wednesday and the FXSI (FX Sentiment Index) slipped lower within Risk-Neutral territory with EM risk premiums compressing. This may continue to provide a positive overlay for Asia intra-day with the ACI (Asian Currency Index) looking to inch lower again. On the net portfolio inflow front in Asia, the KRW continued to show decent inflows on Wednesday, flipping the rolling 1-month balance to a net inflow.
3/3/214 3/7/214 3/11/214 3/3/215 3/7/215 3/11/215 3/3/216 3/7/216 3/11/216 3/3/217 3/7/217 12 October 217 Daily FX Outlook The TWD also saw equity inflows on Wednesday, significantly moderating the net outflow balance over the past month. Rolling net outflows for the INR are also continuing to moderate on renewed inflows on the bond market front. However, note sustained outflow pressure for the IDR on this front and this may continue to merit caution. The THB also continues to see sustained outflow pressures despite some net equity and bond inflows on Wednesday. SGD NEER: Amid a weak broad dollar backdrop, the SGD NEER late NY/early Asia morning strayed above the +1.% (1.3533) but it has since retraced lower to +.96% above its perceived parity (1.367). Despite a heavy dollar tone, downside for the pair may remain limited on account of NEER considerations, especially ahead of the MAS MPS tomorrow morning in Asia. On the upside, the 55-day MA (1.3565) may provide an initial ceiling. 12 118 116 114 112 11 18 16 14 12 1 Asian Currency Index SGD NEER % deviation USD-SGD Current 125.45.96 1.3538 +2.% 126.74 1.34 Parity 124.26 1.3668-2.% 121.77 1.3947 CFETS RMB Index: This morning, the USD-CNY mid-point fell (slightly less than expected) to 6.588 from 6.5841 on Wednesday, pushing the CFETS RMB Index lower to 95.7 compared to 95.2 yesterday and away from the perceived ceiling at 95.2/35. 15 1 95 9 85 8 CFETS NEER vs. USD-CNY mid-point 7. 6.9 6.8 6.7 6.6 6.5 6.4 6.3 6.2 6.1 75 1/1/1 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 1/1/17 6. CFETS RMB Index USD-CNY Fix, Bloomberg Treasury & Strategy Research 2
13-Oct-15 13-Oct-15 13-Oct-15 13-Oct-15 12 October 217 Daily FX Outlook G7 1.21 1.19 1.17 1.15 1.13 1.11 1.9 1.7 1.5 1.3 EUR-USD EUR-USD The EUR also continued to lift as Spanish uncertainty defused (note however the 16 October deadline for the Catalan government) and with the ECB s Praet sounding sanguine (but slightly cautious towards anemic inflation). Note that short term implied valuations are attempting to bounce and the EUR-USD may attempt to base build off the 55-day MA (1.1844) with the nearest cap seen at 1.19. 123 118 113 18 13 98 USD-JPY USD-JPY Despite a poll indicating that the Abe administration may come out ahead at the 22 October Lower House election, the weak greenback continued to suppress the USD-JPY. Short term implied valuations meanwhile remain relatively underpinned. In the near term, despite a slightly top heavy posture, the 112.5 neighborhood may continue to anchor with the 2- day MA (111.84) and 113. bordering near term ranges at this juncture..8.78.76.74.72.7.68 AUD-USD AUD-USD Note that the antipodeans have remained relatively more restrained despite recent USD vulnerability although short term implied valuations for the AUD-USD have been attempting to inch higher in recent sessions. We watch the junction at the 1-day MA (.7796) for any bias within a.774-.786 band in the interim. 1.57 1.52 1.47 1.42 1.37 1.32 1.27 1.22 GBP-USD GBP-USD Despite the Brexit-related overhang, GBP-USD continued to draft the EUR- USD higher on Wednesday. Meanwhile, short term implied valuations are attempting to bounce at this juncture. Nonetheless, investors may be expected to tread lightly in the interim even if the GBP-USD attempts to take a stab at 1.33/2. 1.17 Treasury & Strategy Research 3
13-Oct-15 12 October 217 Daily FX Outlook 1.44 1.39 1.34 1.29 1.24 1.19 USD-CAD USD-CAD The CAD was boosted by the weak greenback, firmer intra-day crude, and headlines indicating that the Trump is open to bilateral trade agreements with Canada (and Mexico). Short term implied valuations seem to be keeling over for now and after overnight price action, the 55-day MA (1.2466) may serve as the nearest resistance, with an initial floor towards 1.2415/2. USD-Asia VS. Net Capital Flows South Korea Taiwan 12 18 8 29.5 1 8 6 4 2-2 -4 11 112 114 116 118 12 122 6 4 2-2 -4 3. 3.5 31. 31.5 32. 32.5 33. 33.5-6 124-6 34. NFB: Bond & Eq 2D RS USD-KRW NFB: 2d RS USD-TWD India 15 1 5 63.5 64.5 65.5 66.5 67.5-5 68.5-1 NFB: Bond & Eq RS 2D USD-INR Indonesia 5 129 4 3 131 2 1 133 135-1 -2 137-3 -4 139-5 Bond & Equity: 2D RS USD-IDR Thailand 3 33. 25 33.5 2 15 1 34. 34.5 5-5 35. 35.5-1 36. -15-2 36.5 Philippines 7 5 46. 47. 3 48. 1 49. -1-3 -5 5. 51. -7 Net bond & equity WTD RS2 USD-THB NFB: RS2 USD-PHP Treasury & Strategy Research 4
29-Sep-5 29-Mar-6 29-Sep-6 29-Mar-7 29-Sep-7 29-Mar-8 29-Sep-8 29-Mar-9 29-Sep-9 29-Mar-1 29-Sep-1 29-Mar-11 29-Sep-11 29-Mar-12 29-Sep-12 29-Mar-13 29-Sep-13 29-Mar-14 29-Sep-14 29-Mar-15 29-Sep-15 29-Mar-16 29-Sep-16 29-Mar-17 29-Sep-17 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 12 October 217 Daily FX Outlook 15 1 5-5 -1 Malaysia 3.8 3.9 4. 4.1 4.2 4.3 4.4 4.5-15 4.6 Equity 2D RS USD-MYR 1.5 1. z-score 4wk MA ACI VS. Net Capital Flows Stronger Asia FX 1m% -4-3.5-2. -1 -.5-1. 1-1.5-2. Weaker Asia FX 2 3-2.5 4 Total Net Flows (2D RS) ACI (RHS) FX Sentiment Index 3.5 3. 2.5 2. 1.5 RISK OFF 1..5. -.5-1. -1.5 RISK ON -2. Treasury & Strategy Research 5
THB MYR RUB GBP KRW SGD CLP TWD EUR PHP CNY SEK NOK COP PLN CHF ARS HUF INR JPY BRL CAD IDR AUD NZD ZAR MXN TRY 12 October 217 Daily FX Outlook 1M Correlation Matrix Security DXY USGG1 CNY SPX MSELCA CRY JPY CL1 VIX ITRXEX CNH EUR DXY 1.833.683.78.55 -.476.776.39 -.569.554.79 -.975 SGD.974.88.729.758.31 -.61.746.198 -.552.46.831 -.958 CHF.94.899.533.83.35 -.446.84.232 -.599.612.632 -.819 CAD.91.951.729.82.185 -.384.917.47 -.671.613.762 -.832 IDR.886.94.719.84.139 -.456.877.49 -.661.62.77 -.846 THB.884.77.741.692 -.46 -.678.691.151 -.594.433.844 -.889 MYR.874.766.63.725 -.1 -.654.647.197 -.566.493.736 -.859 TWD.871.881.929.658 -.149 -.475.843.454 -.827.599.933 -.852 USGG1.833 1.589.874.333 -.385.891.326 -.682.524.629 -.73 INR.812.774.877.525 -.16 -.222.838.649 -.55.756.85 -.821 CNH.79.629.979.449 -.32 -.412.762.49 -.726.65 1 -.836 JPY.776.891.756.651.136 -.22 1.519 -.769.724.762 -.714 CNY.683.589 1.173 -.493.61.756.784 -.581.718.979 -.733 CCN12M.665.672.873.419 -.217 -.335.769.399 -.755.57.96 -.686 KRW.631.546.829.246 -.511 -.55.542.64 -.673.561.791 -.675 PHP.27.357 -.351.544.634 -.233.45 -.316.196 -.33 -.258 -.136 GBP -.732 -.571.66 -.782 -.373.661 -.297.229.132 -.28 -.36.645 NZD -.777 -.742 -.268 -.857 -.368.472 -.493 -.128.176 -.165 -.339.696 AUD -.881 -.91 -.617 -.843 -.29.438 -.773 -.351.491 -.477 -.61.87 EUR -.975 -.73 -.733 -.657.123.449 -.714 -.351.519 -.563 -.836 1 Source: Bloomberg Immediate technical support and resistance levels S2 S1 Current R1 R2 EUR-USD 1.18 1.1843 1.1869 1.19 1.23 GBP-USD 1.3131 1.32 1.3249 1.33 1.3657 AUD-USD.7733.78.784.79.791 NZD-USD.714.751.791.71.7153 USD-CAD 1.24 1.2456 1.246 1.25 1.2598 USD-JPY 111.81 112. 112.4 113. 113.32 USD-SGD 1.3421 1.35 1.3545 1.3555 1.36 EUR-SGD 1.6 1.655 1.676 1.61 1.6127 JPY-SGD 1.2 1.22 1.25 1.21 1.2125 GBP-SGD 1.783 1.79 1.7945 1.8 1.8349 AUD-SGD 1.58 1.535 1.57 1.6 1.633 Gold 1258.39 126.5 1285.8 1296.29 13. Silver 16.8 17. 17.2 17.26 17.54 Crude 5.89 51. 51.3 51.1 52.39 FX performance: 1-month change agst USD. % -1. -2. -3. -4. -5. -6. Source: Bloomberg Treasury & Strategy Research 6
12 October 217 Daily FX Outlook G1 FX Heat Map AUD NZD EUR GBP JPY CAD USD SGD MYR AUD 1 2 2 1 1 1 1 1 NZD 1 9 2 1 2 1 1 1 EUR 2 9 1 1 2 1 1 1 GBP 2 2 1 9 2 1 1 1 JPY 1 1 1 9 1 2 1 1 CAD 1 2 2 2 1 2 1 1 USD 1 1 1 1 2 2 2 2 SGD 1 1 1 1 1 1 2 1 MYR 1 1 1 1 1 1 2 1 Asia FX Heat Map USD JPY CNY SGD MYR KRW TWD THB PHP INR IDR USD 2 2 2 2 2 2 2 2 2 2 JPY 2 2 1 1 2 2 1 1 1 1 CNY 2 2 2 2 1 1 1 1 1 2 SGD 2 1 2 1 1 1 1 1 1 2 MYR 2 1 2 1 1 9 2 1 2 2 KRW 2 2 1 1 1 1 1 9 1 2 TWD 2 2 1 1 9 1 2 1 2 2 THB 2 1 1 1 2 1 2 1 2 2 PHP 2 1 1 1 1 9 1 1 2 2 INR 2 1 1 1 2 1 2 2 2 2 IDR 2 1 2 2 2 2 2 2 2 2 Treasury & Strategy Research 7
12 October 217 Daily FX Outlook FX Trade Ideas Inception B/S Currency Spot Target Stop/Trailing Stop Rationale TACTICAL 1 21-Sep-17 B USD-JPY 112.58 115.5 111.3 Policy dichotomy post FOMC-BOJ + positive risk appetite levels 2 28-Sep-17 S EUR-USD 1.1734 1.149 1.186 Political overhang from Germany contrasting with FOMC, Yellen 3 28-Sep-17 S AUD-USD.7816.7625.7915 Cyclicals may undergo a reassessment in face of corrective moves in the USD and US yields 4 28-Sep-17 B USD-CAD 1.25 1.2795 1.235 Reality check from the BOC's Poloz even as the USD garners renewed interest 5 4-Oct-17 B USD-SGD 1.362 1.375 1.3525 Potential USD resilience- Fed, geopolitical risks, static MAS, decaying capital inflows in Asia 6 9-Oct-17 S GBP-USD 1.3116 1.2835 1.326 Brexit concerns plus additional leadership threats to PM May's position STRUCTURAL 7 9-May-17 B GBP-USD 1.2927 1.37 1.2535 USD skepticism, UK snap elections, positioning overhang, hawkish BOE? 8 22-Aug-17 Bearish 2M 1X1.5 USD-JPY Put Spread Underwhelming data feed, Spot ref: 19.31; Strikes: 19., 16.4; gradualist Fed, potential negative Exp: 2/1/17; Cost:.57% US political baggage 9 29-Aug-17 Bearish 2M 1X1.5 USD-SGD Put Spread Vunerable USD, prevailing Spot ref: 1.3519; Strikes: 1.3511, 1.3361; positivity towards carry, EM/Asia Exp: 27/1/17; Cost:.31% RECENTLY CLOSED TRADE IDEAS Inception Close B/S Currency Spot Close Rationale P/L (%)* 1 7-Sep-17 12-Sep-17 S USD-JPY 19.1 11.15 Suppressed UST yields, dovish Fed rhetoric, geopolitical risks -1.6 2 13-Sep-17 13-Sep-17 B GBP-USD 1.3325 1.32 Hotter than expected Aug core CPI/PPI, hawkish expectations ahead of BOE MPC 3 12-Sep-17 14-Sep-17 S USD-SGD 1.3447 1.3525 Fade the USD relief rally, prepare for renewed interest towards EM/Asia 4 11-Sep-17 18-Sep-17 S USD-CAD 1.2128 1.227 Support from earlier than expected BOC rate hike, inherent USD vulnerability 5 2-Jul-17 21-Sep-17 Bullish 2M 1X1.5 AUD-USD Call Spread More positive than expected RBA Spot ref:.7915; Strikes:.799,.8111; minutes, supportive data, weak Exp: 21/9/17; Cost:.65%. Closed at.7964 USD 6 19-Sep-17 27-Sep-17 B GBP-USD 1.354 1.3395 Earlier than expected paradigm change by the BOE -.95 -.58-1.16 +.4-1.11 Jan-Sep*** 217 Return -3.31 * realized **of notional ***month-to-date 216 Return +6.91 Treasury & Strategy Research 8
12 October 217 Daily FX Outlook This publication is solely for information purposes only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. OCBC and/or its related and affiliated corporations may at any time make markets in the securities/instruments mentioned in this publication and together with their respective directors and officers, may have or take positions in the securities/instruments mentioned in this publication and may be engaged in purchasing or selling the same for themselves or their clients, and may also perform or seek to perform broking and other investment or securities-related services for the corporations whose securities are mentioned in this publication as well as other parties generally. Co.Reg.no.:193232W Treasury & Strategy Research 9